All hands on deck, we’re trying to revive the economy

COMMENT

Due to the Covid-19 pandemic, we face a global recession that is worse than anything most of us can remember. Countries have had to adopt a variety of policy instruments to sustain and preserve jobs. Governments have been pressured to be agile in their response, ensuring that vulnerable members of the society are cushioned during the lockdown.

The pandemic is testing the resilience of most economies, especially those of developing countries. The response of each country to the pandemic depends on its fiscal position, the impact of the crisis, the country’s economic structure and political economy.

South Africa has had it tougher than most in being able to fund the response. This is why a great deal more thought and effort is needed to get us not just out of the Covid-19 hole, but also out of the economic chasm we were plummeting into as a result of the already ravaged state of our economy.

Are we up to the job?

The government was quite speedy in putting together a R500-billion aid fund, and the department of employment and labour’s Temporary Employer/Employee Relief Scheme (Ters) to keep workers on the payroll through state support has made a big difference. Critics have no problem pointing out weaknesses in the way we have managed all this support, but without it, we would be in a far worse state.

Paying out over R40-billion in such a short space of time must be commended. But the task ahead is no less daunting than that which we have seen so far. Many shops are now permanently shut, businesses have closed down, employees have lost their livelihood, with no immediate prospect of finding new work. 

We have to hold back the economic tsunami, and then bring all hands on deck for the task of repairing its devastation.

Even before the Covid-19 Ters programme and the launch of the R500-billion National Disaster Fund, the Unemployment Insurance Fund (UIF) already had a Ters for companies in distress. This benefit will continue to be available even after the Covid-19 Ters winds down. Reduced work time support also has to be considered by employers after Ters has stopped.

However, it is difficult to see how the scale of support we have seen in recent months can be sustained through this one instrument. We therefore need to act smarter and be more nimble in accessing the entire inventory of state-support levers for industry.

Take the Jobs Fund, which was announced in February 2011, with an allocation R9-billion to get going. It is one of the government’s flagship programmes when it comes to job creation, designed to target or support effective labour market interventions that promise job creation in the short to medium term, and the uptake of successful job creation models by the market in the long term.

Projects funded by the Jobs Fund can be a collaboration between multiple partners — including the private sector, the public sector, NGOs and research institutions such as universities.

As of September 30 2019, the fund had supported 153 projects, leveraged R14.1-billion in additional funding from the private sector, created 118 867 new permanent jobs and trained 250 124 individuals.

The biggest hurdle with the fund is the time it takes to get approval: after submitting a concept and a full business case, it takes 9-12 months for a decision to be made.

However, with more funding and quicker turnaround times, the fund can play a key part in reversing the rise in unemployment. I recommend that the fund be recapitalised and continued.

Meanwhile, the department of trade, industry and competition (DTIC) has a total budget of R11-billion for the current financial year, of which R6.8-billion is expected to be used for incentives programmes to fund private sector programmes.

Many incentives have job creation requirements, and in some cases even cover training costs. Many of these criteria will have to be relaxed post Covid-19 — otherwise many companies will just not receive their promised grants. However, the incentive approach remains vital. Businesses need more support now, not less.

In the short term, recipients may not be able to meet their job creation and preservation targets, but the incentive support forms a lifeline that will help them to soldier on during the recession, so they can be ready to expand once the worst is over. It is vital that the DTIC puts mechanisms in place to accelerate current claims.

One of the most prized DTIC programmes is the Black Industrialists Scheme, which is geared towards increasing the participation of black industrialists in the national economy.

Applicants for this support need to be able to show they will be creating employment and sustaining existing jobs to access the scheme, but this may be a challenge in the Covid-ravaged industrial landscape. 

It is the same with DTIC’s Agro-Processing Support Scheme, which encourages and stimulates investment in agro-processing or beneficiation (agri-business) enterprises.

Meanwhile, the DTIC’s 12I Tax Incentive requires applicants to ensure that they spend at least 2.5% of their wage bill on training over a three-year compliance period — so some might struggle to meet this target. I recommend that the compliance period be extended for all applicants.

South African industry must move from survival mode into a different mindset, looking to the future. However, there is limited understanding and knowledge of incentives available for research and development (R&D).

We have found companies are becoming much more innovative, and they must not forget about the R&D support, as these R&D incentives mostly support salaries and wages of employees.

The DTIC has two programmes geared towards supporting R&D activities: the Support Programme for Industrial Innovation and the Technology and Human Resources for Industry Programme. Another programme that is geared towards R&D-related activities is the Section 11D Scheme, which encourages South African companies to invest in scientific or technological research and development, and which is administered by the department of science and innovation (DSI).

Government also needs to focus on climate change as the economy recovers, and should give businesses access to funding and grants to fund this “green transition”.

The state’s incentive schemes have suffered trimming from the treasury for some time now, but they are an important way of funding industrial investment and expansion, even if the job-boosting requirements need to be relaxed. The DTIC and DSI must be vocal and forceful in preserving this package of incentives, in updating and in fighting for the funds to expand them.

Government, then, has a large role to play to assist businesses to recover and grow after this economic crisis. Let us hope that President Cyril Ramaphosa can move his administration to a great deal more action on government support for business, at the same speed that Ters was implemented. The stakes couldn’t be higher.

Duane Newman is a founding director of Cova Advisory. The webinar can be accessed here.